Keynes' main concern in the General Theory is about the capacity of an economy to return to a full employment equilibrium when subject to a (negative) demand shock. He maintains that money wages cuts may not help reabsorb unemployment, as they do not necessarily imply a fall in real wages. On...

This paper reviews the ability of the traditional aggregate demand–aggregate supply framework to explain the unemployment fluctuations of the last three decades. A structural VAR model for the growth rates of labor productivity, inflation and unemployment is estimated on American and French...